
Commodity Update; crude Oil – 02 March 2015
Crude prices hold onto gains as rig counts fall further in North America
Since appearing to bottom at $45 (Brent) & $43 (WTI) per barrel during early January, crude oil prices have rebounded sharply to reach highs of $62 & $54 respectively.
This has been the result of reports that the rig count during January (number of active oil rigs) fell to its lowest level in North America since 2010 according to surveys by US oil firm Baker-Hughes Inc. The report highlights a rig count totalling 1,683 in January, down from 1,882 in December 2014.
While this is positive for oil firms and some investors, we are hesitant as to whether or not we can yet call this an end to the oil glut. Most notably because supply remains at its highest level for many decades, despite the cutback in investment and the total number of active rigs.
Of further note the American Petroleum Institute’s monthly report, which was released a fortnight ago, highlighted that 9.0 million barrels of oil were pumped everyday in North America during January. This is the highest level of production since October 1973.
Although it is possible that the rig count may still fall further, which could lead supply to tighten, we still see excess capacity being a barrier to higher crude prices over the near term. This is particularly so if we do not see any kind of additional boost to demand during the months ahead.
As a result, we expect the sensitivity of oil prices to economic under-performance and downside surprises in incoming data to increase during the weeks and months ahead.
Brent/WTI Crude / 8 Hour Intervals

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